Observations focused on the problems of an underdeveloped country, Venezuela, with some serendipity about the world (orchids, techs, science, investments, politics) at large. A famous Venezuelan, Juan Pablo Perez Alfonzo, referred to oil as the devil's excrement. For countries, easy wealth appears indeed to be the sure path to failure. Venezuela might be a clear example of that.

Archive for June 13th, 2010

The new foreign exchange system went into “operation” on Wednesday, despite the fact that the regulations have yet to be issued, people have just seen some drafts for them, but this did not stop the Government from opening that “market” in order to stop the criticism that it was being delayed. Even today regulations have yet to be seen.

The draft of the regulations says that companies will only be able to ask for US$ 300,000 a month, but no more than US$5 50,000 a day, something many big manufacturers will laugh at. El Nacional said today that this amount would be raised to a million dollars, still insufficient, but definitely an improvement for medium size industries.

However, there are other limitations for this. A company will only be able to participate in this market if it does not qualify for the so called “Lists 1 and 2″ of items that CADIVI has. If your product or raw material is in any of those lists, you will only be able to participate in that market if it has been 90 days since the last CADIVI approval.

Individuals will be able to buy up to $1,000 a month to send to relatives abroad and buy up to $5,000 a year for educational expenses or for travel expenses abroad.. Individuals may also request up to $10,000 a year for health, education, sports and cultural reasons, whatever this may mean.

The Government claims that trading was done in the amount of US$ 17 million or so the first day at the upper side of the range at Bs. 5.3 per US$ , who knows who participated in that market. One has to wonder how this could all work without regulations, how did those participating decide how much they could ask for if regulations did not exist?

Get your quota as soon as you can, it will never be cheaper than this. Ever.

Clearly, the whole system is CADIVI version 2.0, another restricted, difficult way to have access to foreign currency. Companies and individuals will learn in time how to use it, but it will be inefficient in providing fluidity to manufacturing and commerce in Venezuela. The now banned swap market provided such fluidity as anyone could buy even large amounts if the operation required it. This will no longer be the case.

Thus, another level of improvisation and control by this incapable and inefficient Government has been reached. This will result in shortages, inflation and lower economic activity, but Chavez himself says these are capitalistic concepts that are irrelevant in a socialist economy.

I wonder if the “people” agree with him when all sorts of things are missing from every day life.

Of course, it will never be the fault of the Government and Chavez’ cronies, there will always be someone else to blame. They are all doing a wonderful job with 30%+ inflation, -5%+ GDP contraction and wasting 10% of the food the Government imports. Who says they are not incredibly incompetent and that their XXIst. Century Socialism model is not a gigantic failure?